Learning curve

Conventional wisdom says government officials have the steepest learning curve for adjusting to performance-based contracting. But some experts disagree with that assessment.

Although systems integrators and other contractors may have some experience in the contracting approach from their nongovernment business, in many cases, they have as much to learn as federal officials do.

Integrators "aren't all there yet," said Don Scott, senior vice president of EDS' U.S. Government Solutions division. "We don't totally have it learned yet either."

Integrators continue to refine their approach to performance-based contracting, tapping a combination of experience and training. The different approach to writing proposals is obvious, but executives say the learning process extends beyond drafting contracts to managing programs and compensating employees.

But becoming skilled in the new environment takes time, effort and the will to discard past practices. Old habits die hard, for both integrators and agency officials.

"Industry has the same cultural issues that government has," said Chip Mather, senior vice president of Acquisition Solutions. "We've created a whole segment of the industry that has focused on spitting back the government's preferred solution" as expressed in a contract's statement of work.

"For 35 years, it's been the Brooks Act: [The contractor that offers] minimal technical compliance at least price wins," said Bob Guerra of Guerra, Kiviat, Flyzik and Associates. "Changing that mentality is very difficult, even on the business side."

In the performance-based world, agency officials issue a statement of objectives that describes their business problem. Bidders define solutions and establish performance standards for which they are held accountable. Integrators accustomed to regurgitating tightly written specifications now find themselves back in school.

Taking classes

Guerra can attest to that. His company has trained 200 industry employees in performance-based contracting. The company endorses the Seven Steps to Performance-Based Services Acquisition, which has become a road map among agencies.

"Industry people realize they need to be trained on the Seven Steps methodology," Guerra said, adding that interest "is just now starting to take off."

Integrators need to learn that the tenets of performance-based contracting seem counterintuitive. Most have commercial affiliates and, therefore, access to commercial practices. But, Guerra said, knowledge doesn't always transfer across organizational boundaries.

"The government divisions ...are so separate and distinct from their corporate sisters, they exist in their own world," Guerra said.

Integrator executives say industry is moving forward with performance-based contracting. But they acknowledge that mastery of the subject is a work in progress.

EDS officials gained exposure to performance-based contracting three years ago when they pursued the Transportation Security Administration's Information Technology Managed Services pact. Although they lost to Unisys, EDS officials have used their experience on subsequent procurements, industry observers say.

For example, EDS has captured other performance-oriented deals, including a $300 million seat management contract with the Bureau of Alcohol, Tobacco, Firearms and Explosives.

Unisys officials also continue to strengthen their performance-based contracting skills.

"Just like with anything, there is a significant maturation process that is required," said Greg Baroni, president of Unisys Global Public Sector. He counts his company among the pioneers of performance-based contracting. "We've had to live through ... the arrows," he said.

Studying new subjects

The bar for measuring performance rises when companies undertake performance-based contracts, Scott said. They still track simple metrics such as the speed of data transfer or the percentage of time that the system is available. But a performance-based contract also puts the contractor on the hook for directly supporting the agency's performance.

Some contractors have not fully learned that lesson. Integrators don't always link their proposals to the customer's mission objectives.

Guerra said some companies fail to do even the basic research required to understand the customer. "The first thing you need to understand is the President's Management Agenda," he said, adding that only a handful of the industry people attending his training classes have read that document. "We say to them, 'If you sell to Marriott, would you call on them without reading the annual report?'"

But Guerra said the integrators' transformation shouldn't stop with the bid and proposal process. It's more than just a new bid strategy, he said.

Company officials, for example, must rethink their approach to project management, executives say. Traditionally, when vendors need to address a new requirement on an existing contract, the project manager writes a proposal to make changes and submits it to agency officials for approval. If company officials implement the measures that the agency officials approve, the company meets the contract requirements.

Under a performance-based contract, company and agency project managers develop solutions together and share responsibility.

Metrics measure an integrator's ability to support an agency's mission through a project. But an agency's mission may change, and the metrics must change, too.

Baroni said Unisys officials conduct periodic discussions with customers to keep performance-based contracts on track.

Andrea White, director of contracts for Robbins-Gioia, said such checkups are especially important on long-term contracts. She said the results of those sessions, such as a change in a performance metric, should be rolled into the contract to be legally binding.

Compensation is another area that requires relearning, Guerra said. Traditionally, integrator officials would award bonuses to employees involved in winning or working on a contract based on the value of a contract and its profit margin.

The approach makes less sense under a performance-based contract, in which agency officials may reward or penalize companies based on how well they meet performance goals.

Baroni said Unisys officials have established a variable compensation model that rewards employees based on their ability to meet the objectives of a performance-based contract.

As integrators adapt to a performance-based environment, they will evolve or suffer the consequences.

"Companies that try to do it for the first time don't really get it, and they lose," Mather said. "Then watch Darwin kick in."

Moore is a freelance writer based in Syracuse, N.Y.

Industry officials show mastery of performance metrics

Industry has stepped up to the task of bidding on performance-based contracts, said Kevin Carroll (at left), the Army’s program executive officer in the Program Executive Office for Enterprise Information Systems.

“For the most part, industry comes to us with performance objectives and measures and metrics,” he said. “They do a pretty good job of doing that.”

On the government side, procurement personnel continue to grapple with statements of objectives, Carroll said. “Writing a statement of objectives is not easy,” he added.

But the Army has had some success with performance-based contracting through the Information Technology Enterprise Solutions program.

The pending Army Knowledge Online Enterprise Services contract is also structured along performance-based lines.

— John Moore

NEXT STORY: Nadler: Reforming set-asides

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